Friday, July 31, 2009

[ Code Sec. 7122] Offer in compromise (OIC): Bankruptcy distribution. -- The IRS Appeals office acted within its discretion in rejecting a married couple's offer-in-compromise (OIC). Appeals had a legitimate concern that it could forfeit its right to the couple's bankruptcy distribution.

Claude E. Salazar, Dana L. Salazar, Petitioners-Appellants v. Commissioner of Internal Revenue, Respondent-Appellee.

U.S. Court of Appeals, 2nd Circuit; 08-2670-ag(L), 08-3842-ag(CON), July 23, 2009.

Unpublished opinion affirming the Tax Court, 95 TCM 1149, Dec. 57,342(M), TC Memo. 2008-38, and 91 TCM 659, Dec. 56,410(M), TC Memo. 2006-7.

[ Code Sec. 6404]



Before: Calabresi and Katzmann, Circuit Judges, and Eaton, Judge.
GUIDO CALABRESI, ROBERT A. KATZMANN, Circuit Judges,

RICHARD K. EATON, Judge. 1


SUMMARY ORDER


UPON DUE CONSIDERATION of the appeals from the United States Tax Court (Goeke, J.), it is hereby ORDERED, ADJUDGED and DECREED that the decisions of the Tax Court are AFFIRMED.

Appellants Claude E. Salazar and Dana L. Salazar (collectively, "Taxpayers") appeal pro se from the Tax Court's decisions entered on February 25, 2008 and June 2, 2008, sustaining the collection by levy of unpaid employment taxes for the calendar quarters ending December 31, 1998, through June 30, 2001, and unpaid personal income taxes for the years 1997, 1998, and 1999. We assume the parties' familiarity with the underlying facts, the procedural history, and the issues on appeal.

Taxpayers jointly operated an art gallery in Nevada that was organized in Mr. Salazar's name as a sole proprietorship. Certain of the gallery's employment taxes were not paid from 1998 to 2001, and the Taxpayers failed to pay their personal income taxes for the years 1997, 1998, and 1999. In January 2001, Taxpayers filed for Chapter 13 protection, which was later converted to a Chapter 7 proceeding. The Internal Revenue Service ("IRS") filed a proof of claim, later amended, in the bankruptcy proceeding covering these tax liabilities, to which Taxpayers did not object. Taxpayers received a discharge in July 2002, however, their tax liabilities were non-dischargeable. See 11 U.S.C. § 523(a)(1)(A). In August 2005, the bankruptcy trustee disbursed some funds to the IRS, which it applied solely to the employment tax liability.

On October 27, 2003, during the course of the bankruptcy proceeding, the IRS issued a notice of intent to levy for Taxpayers' unpaid income taxes. This notice informed Taxpayers that they had the right to a collection due process ("CDP") hearing with the IRS Appeals Office. Taxpayers asked for a hearing, during which they submitted an offer-in-compromise ("OIC") to the Appeals Office seeking to resolve all outstanding income tax liabilities. Thereafter, having reviewed the IRS Internal Revenue Manual ("IRM"), the Appeals Office rejected Taxpayers' OIC, explaining that accepting it could jeopardize the IRS's ability to collect an additional $20,000 from the Taxpayers' bankruptcy distribution, and noting that Taxpayers had declined to increase their offer by that amount.

On February 22, 2006, the IRS issued an additional notice of intent to levy Mr. Salazar's assets to satisfy the employment tax liability. He likewise asked for a CDP hearing, during which he indicated that he wished the Appeals Office to reconsider its decision not to accept the first OIC. He further objected to the accrual of post-petition interest and to the IRS's decision to apply Taxpayers' joint bankruptcy distribution solely to the employment tax liability. Mr. Salazar then submitted a second OIC in an effort to settle all of Taxpayers' liabilities. After a hearing, the Appeals Office rejected the second OIC, finding that the IRS's reasonable collection potential far exceeded the amount offered. The Appeals Office then issued a notice of determination sustaining the levy.

Taxpayers filed separate petitions in the Tax Court, 2 which were consolidated. The Tax Court then issued a single Memorandum Findings of Fact and Opinion, although it later entered separate decisions on each petition. In doing so, the Tax Court sustained both levies.

Three primary arguments 3 are raised on appeal: (1) that the Appeals Office erred in rejecting Taxpayers' first OIC; (2) that post-petition interest should not have accrued on tax liabilities that were paid by the distribution of funds from the bankruptcy; and (3) that the Tax Court erred in permitting the IRS to apply the August 2005 bankruptcy distribution solely to the employment tax liability.

We review the Tax Court's decisions de novo, and therefore we stand in the shoes of the Tax Court and review the Appeals Office's determinations for abuse of discretion where the underlying liability is not at issue and de novo when it is. See Robinette v. Comm'r, 439 F.3d 455, 462 (8th Cir. 2006); see also Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 625, 628-31 (6th Cir. 2005).

Taxpayers insist that the Appeals Office's rejection of their OIC, (1) based on Taxpayers' refusal to increase their offer to account for the IRS's possible recovery in bankruptcy; and (2) based on the IRS's reliance on the IRM, was unlawful. These contentions are without merit. As the Tax Court observed, the record reveals that the Appeals Office had a legitimate concern about forfeiting the IRS's right to Taxpayers' bankruptcy distribution and there was nothing improper about it consulting the IRM. See Salazar v. Comm'r, T.C. Memo 2008-38, 2008 WL 495313, at *9 ("[The Appeal's Office] was simply applying respondent's guidelines on evaluating offers-in-compromise, including the reasonable collection potential, to the specifics of petitioners' offer."). Further, Taxpayers have made no serious argument as to why the Appeals Office should not consult the IRM. See Christopher Cross, Inc. v. United States, 461 F.3d 610, 613 (5th Cir. 2006) ("Taxpayer has offered no viable support for its contention that the Officer cannot utilize the guidelines set forth in the Manual when making the discretionary decision to return a submitted offer in compromise."). Thus, because the Appeals Office acted within its discretion and, in fact, consistent with the relevant Treasury regulation, the Tax Court's decision must be affirmed. See 26 C.F.R. § 301.7122-1(c)(1) ("[T]he decision to accept or reject an offer to compromise ... is left to the discretion of the Secretary."); see also 26 U.S.C. § 7122(a) ("The Secretary may compromise any civil or criminal case arising under the internal revenue laws ....") (emphasis added)); Murphy v. Comm'r, 469 F.3d 27, 32 (1st Cir. 2006) ("We will only disturb the rejection of [an] offer-in-compromise if it represents a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS.") (internal quotation marks omitted)).

Taxpayers next argue for abatement of interest on their tax liabilities because of an alleged delay in distribution of funds by the bankruptcy trustee. As to this claim, the Tax Court noted that the IRS "was no more in control over the distribution of the bankruptcy proceeds than were [Taxpayers]" and held that the IRS was not prohibited from seeking interest for the time period that Taxpayers' bankruptcy proceeding was pending. See Salazar, T.C. Memo 2008-38, 2008 WL 495313, at *12 (citations omitted). In reaching its conclusion, the Tax Court relied in part upon Woodward v. United States, 113 B.R. 680, 684 (Bankr. D. Or. 1990), in which the court explained that most courts that have considered the issue of whether a debtor remains liable for post-petition interest have found the Supreme Court's decision in Bruning v. United States, 376 U.S. 358 (1964), controlling.

We, too, believe that Bruning v. United States, whatever its full scope may be, precludes these Taxpayers from arguing that post-petition interest could not accrue on non-dischargeable tax liability. See 376 U.S. at 360 (explaining that "logic and reason indicate that post-petition interest on a tax claim excepted from discharge ... should be recoverable in a later action against the debtor personally"); see also In re Johnson Elec. Corp., 442 F.2d 281, 284 (2d Cir. 1971). Moreover, Taxpayers would have remained liable on their non-dischargeable liability --including interest --even had the IRS not filed a proof of claim in their bankruptcy proceeding. See 11 U.S.C. § 523(a)(1)(A). Therefore, we find Taxpayers' claim that the IRS is not entitled to collect post-petition interest to be without merit.

Finally, Taxpayers argue that the Tax Court erred in permitting the IRS to apply Taxpayers' bankruptcy distribution to the employment tax liability. Here, we review the Tax Court's conclusion of law de novo. See Sunik v. Comm'r, 321 F.3d 335, 337 (2d Cir. 2003); 26 U.S.C. § 7482(c)(1). Taxpayers claim that the application of the distribution to what they insist is Mr. Salazar's liability alone is unfair. Notwithstanding Taxpayers' fairness concerns, this claim must fail. The payments from Taxpayers' bankruptcy estate were involuntary, and, therefore, Taxpayers had no entitlement to designate where those payments were to be applied. See United States v. Pepperman, 976 F.2d 123, 127 (3d Cir. 1992) ("Under ... long-standing IRS policy, taxpayers may designate the application of tax payments that are voluntarily made, but may not designate the application of involuntary payments."); In re Kaplan, 104 F.3d 589, 596 n.16 (3d Cir. 1997) ("[A] tax payment has been considered 'involuntary' when it is made to agents of the United States as a result of ... levy or from a legal proceeding in which the Government is seeking to collect its delinquent taxes or file a claim therefor.") (internal quotation marks omitted)). Accordingly, the IRS was free to allocate the funds to Taxpayers' tax liabilities as it saw fit, and it cannot be said to have acted improperly given that the Taxpayers operated the art gallery jointly. See Davis v. United States, 961 F.2d 867, 879 (9th Cir. 1992) ("Involuntary payments, like undesignated [voluntary] payments, may be credited as the IRS desires."); see also Rev. Proc. 2002-26, 2002-1 C.B. 746, at § 3.02 (stating that IRS will apply non-designated payments in a manner that will "serve its best interest").

We have considered Taxpayers' remaining arguments and find them to be without merit. Accordingly, the decisions of the Tax Court are hereby AFFIRMED.

1 The Honorable Richard K. Eaton of the United States Court of International Trade, sitting by designation.

2 Taxpayers originally filed a single joint petition in the Tax Court challenging the Appeals Office's rejection of their first OIC. However, because the employment tax liability was not part of the initial levy, that portion of the petition was dismissed for lack of jurisdiction.

3 An additional argument, concerning the IRS's ability to assess statutory penalties during the pendency of Taxpayers' bankruptcy case, has been resolved by the parties.

Bankruptcy. --Compromises: Bankruptcy

The IRS did not violate 11 U.S.C. §525 when it returned a corporation's offer in compromise (OIC) as nonprocessable during the pendency of its chapter 11 bankruptcy proceeding. IRS policy and procedures provided that, because the corporation was in bankruptcy, processing its OIC was not in the government's best interest. Moreover, mandamus relief was not available to the corporation as an alternative means to compel the government to consider its OIC. The IRS owed no clear duty to the corporation to act as required for mandamus relief. Its discretion to compromise carried with it the discretion not to exercise that discretion.

1900 M Restaurant Associates, Inc., 2007-1 USTC ¶50,116; aff'g, BC-DC D.C., 2005-1 USTC ¶50,313, 319 BR 302.

The IRS was not required to process an offer-in-compromise submitted by debtors in bankruptcy. That type of requirement would be a remedy in the nature of mandamus and that remedy was not appropriate. The IRS owed no clear duty to the debtors and its decision to not process offers-in-compromise submitted by debtors in bankruptcy was solely within its discretion. The plan confirmation process was an adequate alternative remedy to obtain a compromised tax liability from the IRS. Requiring the IRS to negotiate with the debtors outside of the plan confirmation process would not further the provisions of the Internal Revenue Code nor would it foster the ultimate goal of achieving a confirmed plan. The reasoning of 1900 M Restaurant Associates, Inc., BC-DC D.C., 2005-1 USTC ¶50,313, was adopted.

W. Uzialko, BC-DC Pa., 2006-1 USTC ¶50,297.

The District Court affirmed a Bankruptcy Court order requiring the IRS to consider an offer in compromise made by an individual in bankruptcy. The Bankruptcy Court had jurisdiction to make such an order under 11 U.S.C. §105, which states that a bankruptcy court can issue any order necessary to carry out the provisions of the Bankruptcy Code.

W.K. Holmes, DC Ga., 2005-1 USTC ¶50,230.

The IRS was ordered to process and consider an offer in compromise submitted by a debtor despite the agency's published policy of not considering offers in compromise from taxpayers who have filed for bankruptcy. The IRS position of not accepting less than what is required to be paid by a Chapter 13 reorganization plan, as set forth in Rev. Proc. 2003-71, was not required by the Tax Code or Treasury Regulations and did not carry the force and effect of law. Also, the IRS determination not to entertain offers in compromise from those in bankruptcy was not exempt from judicial review as an "agency action."

C. Peterson, BC-DC Neb., 2005-1 USTC ¶50,142, 317 BR 532.

A federal district court upheld a bankruptcy court order compelling the IRS to consider an individual debtor's offer in compromise. The bankruptcy court properly reasoned that the IRS could not dismiss the debtor's offer without processing and considering it, as the IRS does with non-debtor offers. The court reasoned that the offer was not submitted as a request for a discharge of taxes, but rather as a reflection of what the debtor was able to pay. The IRS's policy of mechanically disregarding the debtor's offer in compromise did not allow a "fresh start", as generally promoted by the Bankruptcy laws. Moreover, the rejection of such offers contradicted the IRS's general practice of being flexible in negotiating with debtors. The court rejected the government's claim that the order exceeded the bankruptcy court's jurisdiction pursuant to Bankruptcy Code sections 1129(a)(9) and 1129(a)(7). It was determined that Congress only intended to bar consideration of offers during Chapter 11 proceedings where a debtor did not agree to different treatment of his claim. Finally, the court was not persuaded that the order violated the Anti-Injunction Act.

R.H. Macher, DC Va., 2004-1 USTC ¶50,114, aff'g BC-DC Va., 2003-2 USTC ¶50,537.

The IRS has announced its nonacquiescence with respect to In re Macher, in which a federal district court upheld a bankruptcy court's order compelling the IRS to consider an individual debtor's offer in compromise. The district court found that the IRS's policy of mechanically rejecting a debtor's offer in compromise did not allow the "fresh start," generally promoted by the bankruptcy laws. The district court also found that the IRS's rejection of such offers contradicted the IRS's general practice of being flexible in negotiating with debtors.

Nonacquiescence Announcement, I.R.B. 2004-32, August 9, 2004.

The Chief Counsel has recommended nonacquiescence with respect to In re Macher. In Macher a federal district court upheld a bankruptcy court's order compelling the IRS to consider an individual debtor's offer in compromise. The district court found that the IRS's policy of mechanically rejecting a debtor's offer in compromise did not allow the "fresh start," generally promoted by the bankruptcy laws. The district court also found that the IRS's rejection of such offers contradicted the IRS's general practice of being flexible in negotiating with debtors.

AOD 2004-03, August 5, 2004.

An individual failed to prove that he entered into a contract with the IRS to release a federal tax lien on his real property. Since an IRS agent lacked statutory authority to release the lien prior to the taxpayer's discharge in bankruptcy, he could not accept the taxpayer's offer to release the lien for payment and, thus, there was no mutual assent to a settlement agreement. Moreover, even if a contract had been formed, the existence of a material misrepresentation on the part of the taxpayer would have made the contract voidable.

G.J. Buesing, FedCl, 2000-2 USTC ¶50,724, 228 FSupp2d 908.

An IRS policy not to consider offers in compromise from taxpayers who had filed for bankruptcy was impermissibly discriminatory because it was based solely on the bankruptcy status of the taxpayer and not on the merits of the offer. Failure to consider offers in compromise made by bankruptcy debtors denied the debtors access to procedures set forth in Code Sec. 7122 that were available to all other taxpayers. Further, investigation of offers in compromise did not violate the automatic stay. It was also irrelevant that a bankruptcy filing might transfer the IRS's authority to accept a compromise offer to the Department of Justice. Therefore, married taxpayers who had filed for bankruptcy were entitled to have their offer in compromise considered by the IRS under the same standards as non-debtor taxpayers.

G.E. Chapman, BC-DC W.Va., 99-2 USTC ¶50,690.

Similarly.

D.A. Mills, BC-DC W.Va., 2000-1 USTC ¶50,103, 240 BR 689.

The IRS's rejection of married taxpayers' two offers-in-compromise with respect to both income and employment taxes was not an abuse of discretion. The taxpayers had already filed for bankruptcy when they submitted their first offer-in-compromise (OIC) and the Appeals officer rejected the offer because it was less than what the IRS expected to receive from the bankruptcy distribution and because accepting the offer would risk, if not extinguish, all claims the IRS had to the bankruptcy estate's assets. The IRS also did not abuse its discretion when rejecting the taxpayers' second OIC with respect to the husband's employment tax liabilities because the taxpayers' financial situation had improved by the time the second OIC was submitted and the IRS determined that the taxpayers could pay their liabilities in their entirety. In addition, the taxpayers did not present any argument or evidence to suggest that the rejection of the second OIC was an abuse of discretion.

C.E. Salazar, 95 TCM 1149, Dec. 57,342(M) , TC Memo. 2008-38.

The IRS did not abuse its discretion in rejecting a taxpayer's offer-in-compromise of his outstanding tax liabilities. In evaluating his reasonable collection potential, the taxpayer argued that the IRS failed to make an allowance for his basis living expenses greater than provided in published guidance and that the IRS failed to take into consideration his option to file for bankruptcy and potentially discharge some of the tax liabilities. However, the taxpayer had not disclosed any special circumstances that would warrant allowing him a standard of living more lavish that the standard for the area where he lived. The evidence also indicated that the IRS did consider the possibility that the taxpayer might file for bankruptcy; however, in light of the changes to the bankruptcy law, the IRS believed that the taxpayer would not be able to avoid paying the total tax liability by filing for bankruptcy.

C. Klein, 94 TCM 423, Dec. 57,156(M), TC Memo. 2007-325.

The IRS has issued the 2007 allowable living expense standards. Allowable living expense standards, also known as collection financial standards, are used to determine the ability of a taxpayer to pay a delinquent tax liability. The standards are effective October 1, 2007. For bankruptcy purposes, the effective date for the standards will be January 1, 2008.

IRS News Release, IR-2007-163, October 1, 2007.

An individual's offer-in-compromise, which was based on doubt as to collectibility, was properly rejected because the individual had a reasonable collection potential in excess of $1,000 and he was not in compliance with federal income tax laws. The individual's contention that he was protected under a state law (California) bankruptcy exemption was rejected because it was not properly raised before the IRS Appeals Office. Even if the issue had been properly raised, a federal tax lien would survive a subsequent bankruptcy filing, regardless of any state statute.

A.M. Kun, Dec. 57,513(M), TC Memo. 2008-192.

Thursday, July 30, 2009

IR-2009-69

July 30, 2009

Internal Revenue Service : Fraud prosecution : First-time homebuyer credit .


IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud


IR-2009-69, July 29, 2009

WASHINGTON --The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client's federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

"We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction," said Eileen Mayer, Chief, IRS Criminal Investigation. "The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund."

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.



First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer's spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser's tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site, IRS.gov .


.O. Price III Plea Agreement

July 30, 2009

Internal Revenue Service : Fraud prosecution : First-time homebuyer credit : Plea agreement .


UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION


UNITED STATES OF AMERICA v. JAMES OTTO PRICE, III

CASE NO. 3:09-cr-132-J-25HTS


PLEA AGREEMENT


Pursuant to Fed. R. Crim. P. 11(c), the United States of America, by A. Brian Albritton, United States Attorney for the Middle District of Florida, and the defendant, James Otto Price, III, and the attorney for the defendant, Donald Mairs, mutually agree as follows:



A. Particularized Terms



1. Count(s) Pleading To

The defendant shall enter a plea of guilty to Count One of the Indictment, which charges the defendant with knowingly and willfully aiding and assisting in the preparation and filing of a Federal income tax return knowing it to be false or fraudulent in some material way, in violation of 26 U.S.C. § 7206(2).



2. Maximum Penalties

Count One is punishable by up to three (3) years' imprisonment, a fine of up to $250,000, or both a fine and imprisonment, a term of supervised release of up to one (1) year, and a special assessment of $100. In addition, if the defendant were to violate any of the terms of supervised release upon release from imprisonment, the defendant could be sentenced to an additional term of imprisonment of up to one (1) year and could face an additional period of supervised release. With respect to certain offenses, the Court shall order the defendant to make restitution to any victim of the offense(s), and with respect to other offenses, the Court may order the defendant to make restitution to any victim of the offense(s), or to the community, as set forth below. Additionally, the defendant may be assessed the costs of prosecution.



3. Counts Dismissed

At the time of sentencing, the remaining counts against the defendant, Counts Two through Thirty-Five of the Indictment, will be dismissed pursuant to Fed. R. Crim. P. 11(c)(1)(A).



4. Elements of the Offense(s)

The defendant acknowledges understanding the nature and elements of the offense(s) with which defendant has been charged and to which defendant is pleading guilty. The elements of Count One are:
First : That the Defendant aided or assisted in the preparation and filing of an income tax return which was false in a material way, as charged in the Indictment; and

Second : That the Defendant did so knowingly and willfully.



5. No Further Charges

If the Court accepts this plea agreement, the United States Attorney's Office for the Middle District of Florida agrees not to charge the defendant with committing any other federal criminal offenses known to the United States Attorney's Office at the time of the execution of this agreement, related to the conduct giving rise to this plea agreement.



6. Joirt Stipulation - Loss Amount

The United States and the defendant stipulate and agree that, for purposes of determining the defendant's offense level under USSG §2T4.1. the tax loss attributable to the defendant is more than $200.000 but not more than S400.000. which equates to a base offense level of 18. The parties understand and agree that this stipulation is not binding on the Court, and if not accepted by the Court the parties will not be allowed to withdraw from the plea agreement, and the defendant will not be allowed to withdraw from the plea of guilty. The defendant further understands and agrees that this stipulation and agreement is for criminal sentencing purposes only, and is in exchange for the United States' agreements contained in this plea agreement. including the United States' agreement not to pursue federal charges for relevant conduct against the defendant. The stipulated amount is not binding on the Internal Revenue Service for purposes of determining any restitution amounts or the defendant's civil tax liability. Such liability may be greater than the tax loss amount specified above, and may include interest and penalties .



7. Acceptance of Responsibility - Three Levels

At the time of sentencing, and in the event that no adverse information is received suggesting such a recommendation to be unwarranted, the United States will recommend to the Court that the defendant receive a two-level downward adjustment for acceptance of responsibility, pursuant to USSG §3E1.1(a). The defendant understands that this recommendation or request is not binding on the Court, and if not accepted by the Court, the defendant will not be allowed to withdraw from the plea.

Further, at the time of sentencing, if the defendant's offense level prior to operation of USSG §3E1.1(a) is level 16 or greater, and if the defendant complies with the provisions of USSG §3E1.1(b), the United States agrees to move, pursuant to USSG §3E1.1(b) for a downward adjustment of one additional level. The defendant understands that the determination as to whether the defendant has qualified for a downward adjustment of a third level for acceptance of responsibility rests solely with the United States Attorney for the Middle District of Florida, and the defendant agrees that the defendant cannot and will not challenge that determination, whether by appeal, collateral attack, or otherwise.



8. Cooperation - Substantial Assistance to be Considered

Defendant agrees to cooperate fully with the United States in the investigation and prosecution of other persons, and to testify, subject to a prosecution for perjury or making a false statement, fully and truthfully before any federal court proceeding or feceral grand jury in connection with the charges in this case and other matters, such cooperation to further include a full and complete disclosure of all relevant information, including production of any and all books, papers, documents, and other objects in defendant's possession or control, and to be reasonably available for interviews which the United States may require. If the cooperation is completed prior to sentencing, the government agrees to consider whether such cooperation qualifies as "substantial assistance" in accordance with the policy of the United States Attorney for the Middle District of Florida, warranting the filing of a motion at the time of sentencing recommending (1) a downward departure from the applicable guideline range pursuant to USSG §5K1.1, or (2) the imposition of a sentence below a statutory minimum, if any, pursuant to 18 U.S.C. § 3553(e), or (3) both. If the cooperation is completed subsequent to sentencing, the government agrees to consider whether such cooperation qualifies as "substantial assistance" in accordance with the policy of the United States Attorney for the Middle District of Florida, warranting the filing of a motion for a reduction of sentence pursuant to Fed. R. Crim. P. 35(b). In any case, the defendant understands that the determination as to whether "substantial assistance" has been provided or what type of motion related thereto will be filed, if any, rests solely with the United States Attorney for the Middle District of Florida, and the defendant agrees that defendant cannot and will not challenge that determination, whether by appeal, collateral attack, or otherwise.



9. Use of Information - Section 1B1.8

Pursuant to USSG §1B1.8(a), the United States agrees that no self-incriminating information which the defendant may provide during the course of defendant's cooperation and pursuant to this agreement shall be used in determining the applicable sentencing guideline range, subject to the restrictions and limitations set forth in USSG §1B1.8(b).



10. Cooperation - Responsibilities of the Parties

a. The government will make known to the Court and other relevant authorities the nature and extent of defendant's cooperation and any other mitigating circumstances indicative of the defendant's rehabilitative intent by assuming the fundamental civic duty of reporting crime. However, the defendant understands that the government can make no representation that the Court will impose a lesser sentence solely on account of, or in consideration of, such cooperation.

b. It is understood that should the defendant knowingly provide incomplete or untruthful testimony, statements, or information pursuant to this agreement, or should the defendant falsely implicate or incriminate any person, or should the defendant fail to voluntarily and unreservedly disclose and provide full. complete, truthful, and honest knowledge, information, and cooperation regarding any of the matters noted herein, the following conditions shall apply:

(1) The defendant may be prosecuted for any perjury or false declarations, if any, committed while testifying pursuant to this agreement, or for obstruction of justice.

(2) The United States may prosecute the defendant for the charges which are to be dismissed pursuant to this agreement, if any, and may either seek reinstatement of or refile such charges and prosecute the defendant thereon in the event such charges have been dismissed pursuant to this agreement. With regard to such charges, if any, which have been dismissed, the defendant, being fully aware of the nature of all such charges now pending in the instant case, and being further aware of defendant's rights, as to all felony charges pending in such cases (those offenses punishable by imprisonment for a term of over one year), to not be held to answer to said felony charges unless on a presentment or indictment of a grand jury, and further being aware that all such felony charges in the instant case have heretofore properly been returned by the indictment of a grand jury, does hereby agree to reinstatement of such charges by recision of any order dismissing them or, alternatively, does hereby waive, in open court, prosecution by indictment and consents that the United States may proceed by information instead of by indictment with regard to any felony charges which may be dismissed in the instant case, pursuant to this plea agreement, and the defendant further agrees to waive the statute of limitations and any speedy trial claims on such charges.

(3) The United States may prosecute the defendant for any offenses set forth herein, if any, the prosecution of which in accordance with this agreement, the United States agrees to forego, and the defendant agrees to waive the statute of [imitations and any speedy trial claims as to any such offenses.

(4) The government may use against the defendant the defendant's own admissions and statements and the information and books, papers, documents, and objects that the defendant has furnished in the course of the defendant's cooperation with the government.

(5) The defendant will not be permitted to withdraw the guilty pleas to those counts to which defendant hereby agrees to plead in the instant case but, in that event, defendant will be entitled to the sentencing limitations, if any, set forth in this plea agreement, with regard to those counts to which the defendant has pled: or in the alternative, at the option of the United States, the United States may move the Court to declare this entire plea agreement null and void.



11. Cooperation with Internal Revenue Service

The defendant agrees to fully cooperate with the Internal Revenue Service in the determination and payment of the defendant's civil tax liability for all years for which the defendant has not filed a tax return, or for which the defendant has filed an incorrect tax return. Such cooperation shall include, but is not limited to: (1) providing the Internal Revenue Service with all relevant books, records, and documents in the defendant's possession, under the defendant's control, or otherwise available to the defendant for all such years; (2) filing complete and correct income tax returns for all such years; and (3) paying, or making arrangements acceptable to the Internal Revenue Service to pay over time, the defendant's civil tax liability for all such years. The defendant understands and agrees that the defendant's tax liability for purposes of this paragraph (i.e., the defendant's civil tax liability) may include interest and penalties. The defendant agrees not to file any claim for refund of taxes, interest, or penalties for amounts attributable to any tax returns filed incident to this plea agreement. The defendant agrees to provide the defendant's Probation Officer with such verification as the Probation Officer may deem necessary that the defendant's income tax obligations (under this paragraph and otherwise) are being met.



B. Standard Terms and Conditions



1. Restitution, Special Assessment, and Fine

The defendant understands and agrees that the Court, in addition to or in lieu of any other penalty, shall order the defendant to make restitution to any victim of the offense(s), pursuant to 18 U.S.C. § 3663A, for all offenses described in 18 U.S.C. § 3663A(c)(1) (limited to offenses committed on or after April 24, 1996); and the Court may order the defendant to make restitution to any victim of the offense(s), pursuant to 18 U.S.C. § 3663 (limited to offenses committed on or after November 1, 1987) or § 3579, including restitution as to all counts charged, whether or not the defendant enters a plea of guilty to such counts, and whether or not such counts are dismissed pursuant to this agreement. On each count to which a plea of guilty is entered, the Court shall impose a special assessment, to be payable to the Clerk's Office, United States District Court, and due on date of sentencing. The defendant understands that this agreement imposes no limitation as to fine.



2. Supervised Release

The defendant understands that the offense(s) to which the defendant is pleading provide(s) for imposition of a term of supervised release upon release from imprisonment, and that, if the defendant should violate the conditions of release, the defendant would be subject to a further term of imprisonment.



3. Sentencing Information

The United States reserves its right and obligation to report to the Court and the United States Probation Office all information concerning the background, character, and conduct of the defendant, to provide relevant factual information, including the totality of the defendant's criminal activities, if any, not limited to the count(s) to which defendant pleads, to respond to comments made by the defendant or defendant's counsel, and to correct any misstatements or inaccuracies. The United States further reserves its right to make any recommendations it deems appropriate regarding the disposition of this case, subject to any limitations set forth herein, if any.

Pursuant to 18 U.S.C. § 3664(d)(3) and Fed. R. Crim. P. 32(d)(2)(A)(ii), the defendant agrees to complete and submit, upon execution of this plea agreement, an affidavit reflecting the defendant's financial condition. The defendant further agrees. and by the execution of this plea agreement, authorizes the United States Attorney's Office to provide to, and obtain from, the United States Probation Office or any victim named in an order of restitution, or any other source, the financial affidavit, any of the defendant's federal, state, and local tax returns, bank records and any other financial information concerning the defendant, for the purpose of making any recommendations to the Court and for collecting any assessments, fines, restitution, or forfeiture ordered by the Court.



4. Sentencing Recommendations

It is understood by the parties that the Court is neither a party to nor bound by this agreement. The Court may accept or reject the agreement, or defer a decision until it has had an opportunity to consider the presentence report prepared by the United States Probation Office. The defendant understands and acknowledges that, although the parties are permitted to make recommendations and present arguments to the Court, the sentence will be determined solely by the Court, with the assistance of the United States Probation Office. Defendant further understands and acknowledges that any discussions between defendant or defendant's attorney and the attorney or other agents for the government regarding any recommendations by the government are not binding on the Court and that, should any recommendations be rejected, defendant will not be permitted to withdraw defendant's plea pursuant to this plea agreement. The government expressly reserves the right to support and defend any decision that the Court may make with regard to the defendant's sentence, whether or not such decision is consistent with the government's recommendations contained herein.



5. Defendant's Waiver of Right to Appeal and Right to Collaterally Challenge the Sentence

The defendant agrees that this Court has jurisdiction and authority to impose any sentence up to the statutory maximum and expressly waives the right to appeal defendant's sentence or to challenge it collaterally on any ground, including the ground that the Court erred in determining the applicable guidelines range pursuant to the United States Sentencing Guidelines, except (a) the ground that the sentence exceeds the defendant's applicable guidelines range as determined by the Court pursuant to the United States Sentencing Guidelines; (b) the ground that the sentence exceeds the statutory maximum penalty; or (c) the ground that the sentence violates the Eighth Amendment to the Constitution; provided, however, that if the government exercises its right to appeal the sentence imposed, as authorized by Title 18 United States Code, Section 3742(b), then the defendant is released from his waiver and may appeal the sentence as authorized by Title 18, United States Code, Section 3742(a).



6. Middle District of Florida Agreement

It is further understood that this agreement is limited to the Office of the United States Attorney for the Middle District of Florida and cannot bind other federal, state, or local prosecuting authorities, although this office will bring defendant's cooperation, if any, to the attention of other prosecuting officers or others, if requested.



7. Filing of Agreement

This agreement shall be presented to the Court, in open court or in camera , in whole or in part, upon a showing of good cause, and filed in this cause, at the time of defendant's entry of a plea of guilty pursuant hereto.



8. Voluntariness

The defendant acknowledges that defendant is entering into this agreement and is pleading guilty freely and voluntarily without reliance upon any discussions between the attorney for the government and the defendant and defendant's attorney and without promise of benefit of any kind (other than the concessions contained herein), and without threats, force, intimidation, or coercion of any kind. The defendant further acknowledges defendant's understanding of the nature of the offense or offenses to which defendant is pleading guilty and the elements thereof, including the penalties provided by law. and defendant's complete satisfaction with the representation and advice received from defendant's undersigned counsel (if any). The defendant also understands that defendant has the right to plead not guilty or to persist in that plea if it has already been made, and that defendant has the right to be tried by a jury with the assistance of counsel, the right to confront and cross-examine the witnesses against defendant, the right against compulsory self-incrimination, and the right to compulsory process for the attendance of witnesses to testify in defendant's defense; but, by pleading guilty, defendant waives or gives up those rights and there will be no trial. The defendant further understands that if defendant pleads guilty, the Court may ask defendant questions about the offense or offenses to which defendant pleaded, and if defendant answers those questions under oath, on the record, and in the presence of counsel (if any), defendant's answers may later be used against defendant in a prosecution for perjury or false statement. The defendant also understands that defendant will be adjudicated guilty of the offenses to which defendant has pleaded and, if any of such offenses are felonies, may thereby be deprived of certain rights, such as the right to vote, to hold public office, to serve on a jury, or to have possession of firearms.



9. Factual Basis

Defendant is pleading guilty because defendant is in fact guilty. The defendant certifies that defendant does hereby admit that the facts set forth in the attached "Factual Basis," which is incorporated herein by reference, are true, and were this case to go to trial, the United States would be able to prove those specific facts and others beyond a reasonable doubt.



10. Entire Agreement

This plea agreement constitutes the entire agreement between the government and the defendant with respect to the aforementioned guilty plea and no other promises, agreements, or representations exist or have been made to the defendant or defendant's attorney with regard to such guilty plea.



11. Certification

The defendant and defendant's counsel certify that this plea agreement has been read in its entirety by (or has been read to) the defendant and that defendant fully understands its terms.

DATED this 22 day of July, 2009.
A. BRIAN ALBRITTON

United States Attorney

______________________________

JAMES OTTO PRICE, III

Defendant
By: ______________________________

NICHOLAS A. PILGRIM

Assistant United States Attorney

______________________________

DONALD MAIRS

Attorney for Defendant
______________________________

MAC D. HEAVENER, III

Assistant United States Attorney

Deputy Chief, Jacksonville Division


UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION


UNITED STATES OF AMERICA v. JAMES OTTO PRICE, III

CASE NO. 3:09-cr-132-J-25HTS


PERSONALIZATION OF ELEMENTS


1. Do you admit that on or about February 23, 2009, in Duval County, in the Middle District of Florida, you aided or assisted in the preparation and filing of an income tax return which was false in a material way. as charged in Count One of the Indictment?

2. Do you admit that you did so knowingly and willfully?


UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION


UNITED STATES OF AMERICA v. JAMES OTTO PRICE, III

CASE NO. 3:09-cr-132-J-25HTS


FACTUAL BASIS 1


James Otto Price, III, has prepared numerous fraudulent tax returns. The first fifteen tax returns described in Counts One through Fifteen of the Indictment involve tax year 2008. In these tax returns prepared by Price, Price falsely claimed that the taxpayers were eligible to receive the First-Time Home Buyer Credit made available by Congress pursuant to the Housing and Economic Recovery Act of 2008. (The First-Time Home Buyer Credit can be claimed by using a Form 5405, which is filed with the 2008 or 2009 federal tax return presented or filed by. or on behalf of. a taxpayer. The credit operates like an interest-free loan for the 2008 filing year because it must be repaid over a 15-year period. To qualify for the credit, a buyer must purchase a home within a relevant time period, i.e., April 2008 through December 2009.)

A number of the taxpayers who Price claimed were eligible for the home buyer credit were not even aware that Price had claimed a First-Time Home Buyer Credit on their returns. Other clients were erroneously advised by Price that if they merely contemplated buying a house in the upcoming months, they were eligible for the credit. Price knew when he prepared the fifteen tax returns claiming the First-Time Home Buyer Credit in 2008 that the taxpayers whose returns he prepared had not purchased a home to qualify for the credit. Price also knew that his false representations were material to the IRS' determination of whether the taxpayer would receive the home buyer credit.

For example, with respect to Count One of the Indictment, on or about February 23. 2009. Price met with a client, Charde Hampton, to prepare her tax return. Although Ms. Hampton advised Price that she did not have a house and was not planning on purchasing a house, Price told Ms. Hampton that she qualified for the First-Time Home Buyer Credit by virtue of the fact that she had two jobs. Price then claimed the credit on the tax return that he prepared for Ms. Hampton, and he inputted the address of a home unknown to Ms. Hampton as the house that allegedly qualified for the credit. Price also falsely claimed that the qualifying home had been purchased by Ms. Hampton on January 5, 2009, when, as he well knew, Ms. Hampton had not purchased a home, much less a home on January 5, 2009, to qualify for the home buyer tax credit.

Price's other fraudulent 2008 tax year returns conform to the same pattern. In other words, in addition to fraudulently claiming the First-Time Home Buyer Credit for the 2008 tax returns for his clients whom he knew had not purchased a qualifying home. Price made up a date upon which the taxpayer(s) allegedly purchased the house qualifying for the tax credit. Price knew that the dates that he inputted on the tax returns as the dates for when the qualifying house was purchased were false when he filed the tax returns for his clients. As a result of the fraudulent returns, Price was able to pay himself fees of approximately $1,000 per fraudulent tax return by electronically debiting this amount from the $7,500 home buyer credit and tax refund proceeds wrongly received by his clients.

The remaining twenty tax returns prepared by Price charged in the Indictment involve tax years 2004 and 2005. In these returns. Price intentionally overstated or made up charitable contribution deductions and unreimbursed employee expenses on the Schedule A and/or Form 2106-EZ for the taxpayers. Price also intentionally made up false businesses and business expenses on the Schedule C forms incorporated with the tax returns in order to increase the amount of the tax refund that his clients would receive. Price profited from preparing these false returns by getting his clients to return to him as clients and to refer new business to him. It should be noted that many of the taxpayers did not even know that Price had claimed on their tax return that they owned a for-profit business until they were subsequently contacted by the IRS for an audit. Price knew that the fictitious figures he inputted onto the tax returns of his clients would have the effect of increasing the tax refund paid out to his clients beyond the amount that the taxpayers would have received from the IRS in the absence of Price's false representations. Price prepared the thirty-five tax returns identified in the Indictment in Duval County, in the Middle District of Florida, on or about the dates specified in the Indictment for each tax return. The tax loss attributable to Price as a result of the thirty-five fraudulent tax returns that he prepared is $216,454.00.

1 The factual basis is prepared by the United States and does not include all of the facts relevant to the defendant's involvement in the crime to which the defendant is pleading guilty.

Wednesday, July 29, 2009

Jess Willard Canterbury v. Commissioner.

Docket No. 17393-06S . Filed July 28, 2009.


An barge operator who was employed by the same New York company in excess of one year was denied a deduction for travel expenses from his residence in Florida to New York because his tax home was determined to be the location of his principal place of employment in New York. The barge operator worked two weeks and then returned to Florida for his two off weeks so that he could be near his daughter. Most of the barge operator's work assignments originated in New York and, for those that did not, his employer reimbursed him for travel expenses from New York to other northern ports, but not for his expenses from Florida to New York. He testified that he took the New York job because it paid twice what he could make in Florida and he got an extra week off between assignments; therefore, it was his personal choice to maintain a Florida residence and commute to New York and his commuting expenses were not deductible.



ARMEN, Special Trial Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time that the petition was filed. 1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.



Respondent determined a deficiency of $2,768 in petitioner's Federal income tax for 2003.



After the parties' concessions, the issue for decision is whether petitioner is entitled to a deduction of $4,866 for travel expenses under section 162(a)(2). The resolution of this issue turns on whether petitioner's "tax home" was in the New York City metropolitan area (hereinafter, New York) or in or around Jacksonville, Florida (hereinafter, Jacksonville). We hold that petitioner's tax home was in New York and, therefore, that he is not entitled to the deduction in issue.





Background



Some of the facts have been stipulated, and they are so found. We incorporate by reference the parties' stipulation of facts and accompanying exhibits.



When the petition was filed, petitioner resided in the State of Florida.



In 2003 petitioner began working as a barge mate with Reinauer Transportation Cos., L.L.C. (Reinauer). At that time, and at all relevant times thereafter, petitioner resided in Jacksonville.



As a barge mate, petitioner was responsible for the operation and safety of the barge, including assuring that the barge was transported in water deep enough to support the barge's draft.



After being offered a job with Reinauer, petitioner reported to New York on January 20, 2003, and proceeded to Reinauer's barge in Brooklyn, where he filled out paperwork for Reinauer and began his first assignment. Petitioner remained employed with Reinauer until sometime in 2005. Petitioner was not required by Reinauer to reside in New York. Throughout 2003, petitioner lived in Jacksonville, where his daughter also lived.



Following petitioner's initial assignment, Reinauer's dispatcher called petitioner to tell him when and where to report to his next assignment. Once notified of his assignment, petitioner reported directly to the barge whether stationed in New York Harbor; Boston, Massachusetts; Portland, Maine; Providence, Rhode Island; or Yorktown, Virginia. When assigned to a barge stationed in New York Harbor, which was the case for most of his assignments, 2 petitioner usually flew to Newark, New Jersey, and took a cab to the barge. The one occasion on which the barge was stationed in Virginia, petitioner drove from Florida to the barge. When petitioner was assigned to a barge stationed in Maine, Massachusetts, or Rhode Island, Reinauer arranged for petitioner to fly out of Newark; thus, petitioner flew from Jacksonville to Newark in order to board the flight to the barge location.



When the barge was stationed outside New York Harbor, Reinauer made arrangements for or reimbursed petitioner for the cost of his travel from New York to the other port. On the one occasion when petitioner drove directly to the barge from his residence in Florida, Reinauer did not reimburse him for his transportation expenses. Reinauer also did not reimburse petitioner for his expenses in traveling between Jacksonville and New York.



In traveling from his residence in Jacksonville to New York to report to his barge assignments, petitioner incurred airline fares, cab expenses, and tolls of $4,866.



Before working for Reinauer, petitioner worked in Jacksonville as well as in other locations around the country. During 2003 he chose to work for Reinauer in New York because the pay was twice the rate for the same work in Jacksonville. In addition, in New York, a barge mate worked 2 weeks on and 2 weeks off, whereas in Jacksonville a barge mate worked 2 weeks on and only 1 week off.





Discussion



Generally, expenditures for transportation to and from a taxpayer's workplace are considered personal expenses and are not deductible. Sec. 262; secs. 1.162-2(e), 1.262-1(b)(5), Income Tax Regs. However, travel expenses may be deducted under section 162(a)(2) if they are: (1) Ordinary and necessary; (2) incurred while "away from home"; and (3) incurred in pursuit of a trade or business. Commissioner v. Flowers, 326 U.S. 465, 470 (1946). The reference to "home" in section 162(a)(2) means the taxpayer's "tax home". 3 Mitchell v. Commissioner, 74 T.C. 578, 581 (1980); Foote v. Commissioner, 67 T.C. 1, 4 (1976); Kroll v. Commissioner, 49 T.C. 557, 561-562 (1968).



As a general rule, a taxpayer's principal place of employment is his tax home, not where his personal residence is located, if different from his principal place of employment. Mitchell v. Commissioner, supra at 581; Kroll v. Commissioner, supra at 561-562. An exception to the general rule exists where a taxpayer accepts temporary, rather than indefinite, employment away from his personal residence; in that case, the taxpayer's personal residence may be his tax home. Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). Section 162(a) provides that the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. Similarly, if a taxpayer does not have a principal place of employment, the courts have determined that his residence may be his tax home. Johnson v. Commissioner, 115 T.C. 210, 221 (2000).



A taxpayer whose employer does not require him to travel may not deduct transportation expenses, as they are more in the nature of nondeductible personal commuting expenses. Commissioner v. Flowers, supra at 473. "The exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors." Id. at 474.



This Court has differentiated between deductible and nondeductible transportation expenses, holding that a riverboat pilot's transportation expenses between his residence and points of assignment and return were nondeductible commuting expenses, whereas transportation expenses attributable to traveling directly from one assignment to another were deductible. Heuer v. Commissioner, 32 T.C. 947, 953 (1959) (taxpayer commuted from his residence to more than 100 points of assignment and from one assignment to another), affd. 283 F.2d 865 (5th Cir. 1960). The distance a taxpayer commutes to work, no matter how far, still represents nondeductible commuting expenses under section 262. Commissioner v. Flowers, supra at 473.



Although the subjective intent of the taxpayer is a factor to be considered in determining tax home for purposes of 162(a)(2), this Court and others have consistently focused on more objective criteria. Foote v. Commissioner, supra at 3-4.



Petitioner contends that his tax home was in Jacksonville, as that was where he maintained a home and resided while he was not working on Reinauer's barges. Respondent argues that petitioner's tax home was not his residence in Jacksonville, but rather in New York at his principal place of employment. We agree with respondent.



In January 2003 petitioner began employment as a barge mate with Reinauer and reported to New York, where he completed paperwork and received his first assignment. Although each assignment typically lasted a fortnight, petitioner remained employed by Reinauer until 2005. Thus, his employment with Reinauer was not temporary within the meaning of section 162(a) in that he was employed for a period in excess of 1 year.



There is ample evidence in the record to support the conclusion that New York was petitioner's principal place of employment. For each assignment, Reinauer's dispatcher called petitioner directly to inform him when and where to report to the barge for his next assignment, and petitioner reported directly to the designated location. Most of petitioner's assignments originated in New York. If the barge was stationed in New York Harbor, petitioner flew to Newark from Jacksonville to catch the barge. If the barge was north of New York, in Maine, Massachusetts, or Rhode Island, petitioner flew to Newark, boarded another plane, and flew to the location of the barge. Reinauer reimbursed petitioner for his transportation expenses between New York and the northern locations but did not reimburse him for travel between Florida and New York. For the one assignment south of New York, in Virginia, petitioner drove his personal vehicle to the barge at Yorktown and was not reimbursed for such travel. This pattern of reimbursement indicates that petitioner's travel from Florida to New York was regarded by his employer as a home-to-work commute.



Petitioner testified at trial that he took the job with Reinauer because he received more pay for less work. Indeed, he earned twice as much working as a barge mate in New York compared with working in Jacksonville; moreover, following a 2-week work period, petitioner received 2 weeks off rather than only 1 week. Petitioner's daughter also lived in Jacksonville. The rate of pay, the time off, and the proximity to his daughter suggest that it was personal choice and not business exigencies that dictated the decision by petitioner to maintain his residence in Jacksonville and commute to New York. See Commissioner v. Flowers, supra at 474.



Consequently, because petitioner's position with Reinauer lasted more than 1 year, and further because most of his assignments originated in New York, his principal place of employment, and therefore his tax home, was in New York for the relevant period.



In conclusion, because petitioner was not "away from home" within the meaning of section 162(a)(2), he is not entitled to a deduction for expenses incurred for traveling between Florida and New York. Instead, his costs were in the nature of personal expenses for commuting. We thus sustain respondent's determination on this issue.





Conclusion



We have considered all of the other arguments made by petitioner and, to the extent that we have not specifically addressed them, we conclude that they are without merit.



To reflect our disposition of the disputed issue, as well as the parties' concessions,



Decision will be entered under Rule 155.


1 Unless otherwise indicated, all subsequent section references are to the Internal Revenue Code in effect for 2003, the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2 Petitioner had 13 assignments during 2003. Six of the assignments originated in New York Harbor; three in Portland, Maine; two in Boston, Massachusetts; one in Yorktown, Virginia; and one assignment, beginning Oct. 10, 2003, did not designate an origin, but the barge floated through the Erie basin en route to Albany, and thus that assignment most likely originated in New York Harbor.

3 The vocational "tax home" concept was first construed by this Court in Bixler v. Commissioner, 5 B.T.A. 1181, 1184 (1927), and has been steadfastly upheld by this Court. See, e.g., Horton v. Commissioner, 86 T.C. 589 (1986); Leamy v. Commissioner, 85 T.C. 798 (1985); Foote v. Commissioner, 67 T.C. 1 (1976); Kroll v. Commissioner, 49 T.C. 557 (1968).

Tuesday, July 28, 2009

tax lien invalid

Dorothy Smith-Irving v. Commissioner.

Docket No. 18234-07S . Filed July 27, 2009.


The IRS could not proceed with collection against a delinquent taxpayer because her assessment was untimely. Although she had signed a Form 4945-CG, Income Tax Examination Changes, that included a consent to the assessment and a waiver of her right to a deficiency notice, the form was invalid. Her cover letter that accompanied the form made it clear that she misunderstood the proposed changes; the IRS was therefore aware of her confusion; and, under state (California) contract law, one party's unilateral mistake invalidated an agreement if the other party knew or had reason to know of the error. The taxpayer's subsequent deficiency notice was also invalid because the IRS did not mail it to her last known address, and there was no evidence she had actually received it. However, since the taxpayer had an opportunity to contest the assessment after she received a notice of intent to levy, she could not dispute her underlying tax liability at her Collection Due Process (CDP) hearing, and the IRS determination was reviewed for abuse of discretion. Finally, since the assessment was invalid, the IRS Appeals officer who conducted the hearing abused his discretion when he concluded that the IRS had satisfied all legal and administrative requirements before it issued the taxpayer's tax lien.
Gerber, Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed. 1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.

Respondent determined to proceed to collect petitioner's unpaid tax liabilities for tax year 1997 by filing a notice of Federal tax lien (NFTL). Petitioner seeks review of that determination under sections 6320(c) and 6330(d).

The issue for consideration is whether respondent's determination to proceed with collection was an abuse of discretion.


Background

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner resided in California when she filed her petition.

Petitioner began a prolonged and complex journey when she filed her 1997 Form 1040, U.S. Individual Income Tax Return, on April 19, 1999. On that return she reported a $27,411 tax liability (original liability). Petitioner did not remit payment with her 1997 return. Respondent assessed the reported liability (original assessment) and also applied a $1,396 withholding tax credit. Additionally, respondent determined additions to tax of $458.15 for failure to pay estimated tax, $5,853.37 for failure to file timely the return, and $1,690.97 for failure to pay the tax shown on the return. On July 26, 1999, respondent notified petitioner of his intent to levy, but petitioner did not request a collection due process (CDP) hearing.

On December 20, 1999, petitioner filed a Form 1040X, Amended U.S. Individual Income Tax Return, for 1997 showing reduced taxable income because of a reduction in the amount reported as an early withdrawal distribution from her individual retirement account (IRA). She claimed a $74,012 reduction of her adjusted gross income and, in turn, a $13,910 reduction of her tax liability. On December 23, 1999, petitioner submitted an offer to compromise her outstanding tax liability (first OIC). On March 26, 2002, respondent rejected petitioner's first OIC.

On March 8, 2000, respondent notified petitioner that her 1997 return had been selected for examination. On January 18, 2001, respondent notified petitioner that the claimed reduction in adjusted gross income had been disallowed and that additional tax was due. The letter was accompanied by a Form 2297, Waiver of Statutory Notification of Claim Disallowance, with respondent's request that petitioner sign and return it if she agreed with the examination results. In a February 21, 2001, letter, respondent asked petitioner to sign a Form 4549-CG, Income Tax Examination Changes, with the request that petitioner sign and return it if she agreed with respondent's determination of $59,301 of additional taxable income. The increase was mostly due to the disallowance of petitioner's charitable contribution deduction for lack of substantiation. Respondent's determination obviated the $13,910 reduction in tax liability petitioner claimed on her amended return and resulted in a $17,038 tax increase (audit liability). Respondent also determined an additional late filing addition to tax of $4,909.88.

By cover letter dated March 5, 2001, petitioner signed and returned the Forms 4549-CG and 2297. However, she did so under the mistaken belief that respondent was proposing to reduce her outstanding tax liability to $17,038 rather than increasing it by that amount. Petitioner's cover letter revealed the misunderstanding and provided respondent with petitioner's new address as of April 13, 2001.

Because it appeared to respondent that petitioner did not understand the Form 4549-CG, petitioner was issued a notice of deficiency on May 31, 2001. The notice of deficiency, however, was mailed to petitioner's old address. There is no indication that she received the notice, and she did not file a petition with this Court. On September 3, 2001, respondent assessed the deficiency and the addition to tax (audit assessment).

On December 5, 2001, petitioner filed a chapter 7 bankruptcy petition. On March 18, 2002, the bankruptcy court granted a partial discharge of her 1997 tax liability, abating the $21,447.83 remaining on the original liability and all associated penalties and interest. The audit liability was not abated because the audit assessment had been made within 240 days before the bankruptcy petition's filing date.

Pursuant to the bankruptcy court's order, respondent adjusted petitioner's account to reflect the abatement of the additions to tax for estimated tax, late filing, and failure to pay. Respondent, however, did not reduce the original assessment and the associated interest in accordance with the amounts abated.

On August 24, 2005, respondent sent petitioner a second notice of intent to levy concerning petitioner's outstanding 1997 tax liability. Because respondent had not applied the abatement of the tax liability from the original assessment and its associated interest, the notice erroneously stated petitioner's unpaid tax liability as $35,534.95. Petitioner did not request a CDP hearing.

On January 9, 2006, petitioner offered to compromise her outstanding tax liabilities 2 for $31,500 (second OIC) on the basis of doubt as to liability and doubt as to collectibility. On April 19, 2006, respondent rejected the second OIC and filed an NFTL with respect to petitioner's unpaid tax liabilities. On April 21, 2006, respondent notified petitioner of the NFTL filing. On May 22, 2006, petitioner made a timely request for a CDP hearing.

On June 20, 2007, Settlement Officer Nathan August (Mr. August) conducted a telephone CDP hearing with petitioner. He told petitioner that she could not contest the underlying tax liability because she had had a prior opportunity to do so. He also informed her that the abatement of the original liability had not been posted to her account. He estimated that she would have a remaining liability of approximately $20,000 to $25,000 after the abatement was applied because the audit liability had not been discharged.

Mr. August also reviewed respondent's decision to reject petitioner's second OIC. He stated that there was no doubt as to liability because she had consented to the audit assessment by signing the Form 4549-CG. He also stated that there was no doubt as to collectibility because she had sufficient assets and/or monthly income to fully pay the liability. Because Mr. August believed there was no doubt as to liability or collectibility, he informed petitioner that he would be sustaining the rejection of the second OIC.

Petitioner argued that the NFTL was invalid because the amount of the 1997 liability reflected on the NFTL was incorrect. Mr. August explained that an incorrect amount did not provide a basis to amend the NFTL. He therefore indicated that he would be sustaining the filing of the NFTL.

Petitioner also requested abatement of interest and additions to tax, stating that she had not been aware of the nondischargeability of the audit liability. Mr. August advised her that the interest and addition to tax accruals resulted from petitioner's failure to pay rather than from any errors or delays by respondent. As a result, Mr. August did not find cause for abatement.

On July 16, 2007, respondent sent petitioner a notice of determination sustaining the NFTL filing. Respondent also sent petitioner a letter informing her of the rejection of her request for abatement of interest for the period from September 3, 2001, to June 20, 2007. On August 14, 2007, petitioner filed a petition with the Court for review of the notice of determination.


Discussion

If a taxpayer neglects or refuses to pay a tax owed after demand for payment, the unpaid tax will be a lien in favor of the United States upon all property and rights to property belonging to that person. Sec. 6321.

Upon request, the taxpayer is entitled to an administrative review hearing before an impartial officer or employee of the Appeals Office. Sec. 6320(b). The hearing is conducted according to the procedures under section 6330(c), (d), and (e). Sec. 6320(c). At the hearing, the taxpayer may raise any issue relevant to the unpaid tax or the Commissioner's collection activities. Sec. 6330(c)(2)(A). However, if a taxpayer received a statutory notice of deficiency for the year in issue or otherwise had a prior opportunity to dispute the underlying tax liability, the taxpayer is precluded from challenging the existence or amount of the liability. Sec. 6330(c)(2)(B). A taxpayer who has signed a Form 4549-CG is deemed to have had an opportunity to dispute the underlying tax liability. Zapara v. Commissioner, 124 T.C. 223, 228 (2005); see Aguirre v. Commissioner, 117 T.C. 324, 327 (2001). A taxpayer who previously received a notice under section 6330 for the same tax and tax periods and did not request a hearing has already received an opportunity to challenge the existence and amount of the underlying liability. Sec. 301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs.

Following the hearing, the Appeals officer must determine whether the collection action is to proceed, taking into account the verification the Appeals officer has made, the issues the taxpayer raised at the hearing, and whether the collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Sec. 6330(c)(3).

For determinations made after October 16, 2006, this Court has jurisdiction to review the determination irrespective of the type of tax liability involved. Pension Protection Act of 2006, Pub. L. 109-280, sec. 855, 120 Stat. 1019; Callahan v. Commissioner, 130 T.C. 44 (2008). When the validity of the underlying tax liability is properly at issue, we review the determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). When the underlying tax liability is not in issue, we review for abuse of discretion. Id. at 182. Under the abuse of discretion standard, the taxpayer is required to show that the Commissioner's actions were arbitrary, capricious, or without sound basis in fact. See Knorr v. Commissioner, T.C. Memo. 2004-212.

Respondent contends that petitioner was not entitled to dispute her underlying tax liability at the CDP hearing because she: (1) Signed the Form 4549-CG; (2) was sent a notice of deficiency and did not petition the Court; and (3) received the second notice of intent to levy and did not request a CDP hearing.

Petitioner argues that the Form 4549-CG was invalid because she signed it under the mistaken belief that her tax liability had been reduced to $17,038 rather than increased. Petitioner further contends that the notice of deficiency was also invalid because it was not sent to her last known address.

Though the Form 4549-CG and the notice of deficiency were invalid (discussed infra), petitioner did have an opportunity to dispute her underlying tax liability when she received the second notice of intent to levy. Accordingly, we will review respondent's determination for abuse of discretion.

Section 6330(c)(1) and (3) requires the Appeals officer to obtain verification that the requirements of any applicable law or administrative procedure have been met. In order to collect a tax owed by the taxpayer, the Commissioner generally must assess the liability within 3 years after the return is filed. Secs. 6303(a), 6501(a). Section 6503(h) extends that 3-year period of limitations for the time the Commissioner is precluded from assessing the tax because of the filing of a bankruptcy petition, plus 60 days. The Commissioner is generally precluded from assessing a deficiency until after the mailing of a notice of deficiency, unless the taxpayer waives that restriction. Sec. 6213(a), (d).

The audit assessment was made after petitioner had submitted a signed Form 4549-CG and after respondent had issued her a notice of deficiency. Petitioner claims the Form 4549-CG and the notice of deficiency were invalid.

Form 4549-CG includes a waiver under which a taxpayer consents to immediate assessment and collection and waives the right to receive a notice of deficiency. We apply contract principles in determining the enforceability of waiver documents. Horn v. Commissioner, T.C. Memo. 2002-207. In California a party's unilateral mistake is ground for relief where the other party knew or had reason to know of the mistake. Libby, McNeil & Libby, Cal. Canners & Growers v. United Steelworkers of Am., 809 F.2d 1432, 1434 (9th Cir. 1987); 1 Restatement, Contracts 2d, sec. 153(b) (1981).

When petitioner signed the Form 4549-CG, she believed that the audit examiner had told her that her tax liability would be reduced. The accompanying cover letter communicated her confusion as to the amount of her tax liability: "I am a little skeptic [sic] in signing this because it looks like $27,000 is the amount due instead of $17,000." (Emphasis added.) The cover letter put respondent on notice that petitioner did not understand she was consenting to the assessment of an additional tax liability, and respondent accordingly issued petitioner a notice of deficiency. Because respondent was aware of petitioner's unilateral mistake, there was no meeting of the minds and the Form 4549-CG waiver is invalid.

Petitioner also claims the notice of deficiency is invalid because it was sent to the wrong address. A notice of deficiency is sufficient if mailed to the taxpayer's last known address. Sec. 6212(b); Frieling v. Commissioner, 81 T.C. 42, 52 (1983). A taxpayer's last known address is the address shown on the taxpayer's most recently filed return, absent clear and concise notice of a change of address. Sec. 301.6212-2(a), Proced. & Admin. Regs.

Petitioner's March 5, 2001, cover letter provided respondent with such notice of her change of address. The letter informed the audit examiner that she would be moving to her new address on April 13, 2001. Respondent issued the notice of deficiency after that date on May 31, 2001, but nevertheless mailed it to petitioner's old address. Because the notice of deficiency was not sent to petitioner's last known address and there is no evidence she actually received it, the notice is invalid.

Because the Form 4549-CG and the notice of deficiency were invalid, the September 3, 2001, assessment was improper. Respondent did not make a valid assessment of the audit liability before the period for assessment, as extended by the bankruptcy filing, expired. Because respondent's assessment was invalid on account of the expiration of the assessment period, Mr. August's verification that the requirements of applicable law had been met was incorrect. Respondent's determination to sustain the NFTL filing was therefore in error as a matter of law and was an abuse of discretion.

Accordingly, respondent cannot proceed with collection.

To reflect the foregoing,

Decision will be entered for petitioner.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for period under consideration.

Monday, July 27, 2009

TAO regulations have been proposed

Assistance Order ., (July 27, 2009)
Proposed Regulations, NPRM REG-152166-05

July 27, 2009

Code Sec. 7811

IRS Organization : National Taxpayer Advocate : Taxpayer Assistance Order .



DEPARTMENT OF THE TREASURY



Internal Revenue Service

26 CFR Part 301

[REG-152166-05]

RIN 1545-BF33

Taxpayer Assistance Orders

AGENCY: Internal Revenue Service (IRS), Treasury

ACTION: Withdrawal of notice of proposed rulemaking and notice of proposed rulemaking.

SUMMARY: This document withdraws the notice of proposed rulemaking published on April 19, 1996, in the Federal Register and contains proposed regulations relating to the issuance of Taxpayer Assistance Orders (TAOs). The IRS is issuing these proposed regulations to provide guidance relating to the issuance of a TAO. These proposed regulations are necessary because the existing regulations do not reflect changes to the law made by the Taxpayer Bill of Rights II (TBOR 2), the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004 (AJCA). The action taken in these proposed regulations will affect IRS employees in cases where a TAO is being considered or issued.

DATES: Written or electronic comments and requests for a public hearing must be received by [ INSERT DATE 90 DAYS AFTER DATE OF PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER ].

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-152166-05), room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20224. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-152166-05), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20044, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov/ (IRS REG-152166-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Janice R. Feldman, (202) 622-8488; concerning submissions of comments, Richard.A.Hurst@irscounsel.treas.gov (202)622-7180(not toll-free numbers).

SUPPLEMENTARY INFORMATION:



Background

Section 7811 of the Internal Revenue Code (Code) authorizes the NTA to issue a TAO when a taxpayer is suffering or is about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS and the law and the facts support relief. A TAO may be issued to direct that the operating division or function take a specific action, cease a specific action, or refrain from taking a specific action or to order the IRS to review at a higher level, expedite consideration of, or reconsider a taxpayer's case. The IRS will comply with a TAO unless it is appealed and then modified or rescinded by the Commissioner, the Deputy Commissioner, or the NTA. Appeal procedures are provided in the Internal Revenue Manual (IRM).

Proposed regulations were published on April 19, 1996, in the Federal Register (61 FR 17265). The proposed regulations limited the authority to modify or rescind TAOs to the Ombudsman, the Commissioner, and the Deputy Commissioner, and, with the written authorization of one of these officials, a district director, a service center director, a compliance center director, a regional director of appeals (director), or the superiors of a director. Following the publication of the proposed regulations, Congress enacted TBOR 2, Public Law 104-168, 110 Stat. 1452 (1996), which, among other things, authorized only the Taxpayer Advocate, the Commissioner, or the Deputy Commissioner to modify or rescind a TAO. In light of the enactment of TBOR 2, this document withdraws the proposed regulations published in the Federal Register on April 19, 1996.

This document also contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) relating to TAOs under section 7811 . Temporary regulations ( TD 8246 ) were published on March 22, 1989, in the Federal Register (54 FR 11699). Final regulations ( TD 8403 ) were published on March 23, 1992, in the Federal Register (57 FR 9975). After the final regulations were published, sections 101 and 102 of TBOR 2, Public Law 104-168, 110 Stat. 1452 (1996), amended section 7811 by changing the name of the Ombudsman to the Taxpayer Advocate, providing that TAOs may order the IRS to take certain affirmative actions, and restricting who may modify or rescind a TAO. Section 1102 of RRA 98, Public Law 105-206, 112 Stat. 685 (1998), further amended section 7811 , by providing examples of significant hardship and replacing "Taxpayer Advocate" with "National Taxpayer Advocate." Section 881(c) of AJCA, Public Law 108-357, 118 Stat. 1418 (2004) clarified that a TAO applies to personnel performing services under a qualified tax collection contract to the same extent as it applies to IRS personnel. Thus, this document contains a new notice of proposed rulemaking implementing the amendments under section 7811 pursuant to the enactment of TBOR 2, RRA 98, the Community Renewal Tax Relief Act of 2000, and AJCA and also to provide guidance on issues that have arisen in the administration of section 7811 . Section 301.7811-1(e) of the existing regulations, which concerns the suspension of statutes of limitations, is not being revised as part of this proposed rulemaking as changes to that section may involve changes to IRS computer processing systems and will be dealt with at a later date.



Explanation of Provision



1. Significant Hardship

Under Section 301.7811-1(a)(4)(ii) of the existing regulations, significant hardship means "serious privation caused or about to be caused to the taxpayer as the result of the particular manner in which the internal revenue laws are being administered by the Internal Revenue Service." RRA 98 clarified the meaning of the term significant hardship by providing a nonexclusive list of types. Section 7811(a)(2) provides that significant hardship includes: (1) an immediate threat of adverse action;(2) a delay of more than 30 days in resolving taxpayer account problems;(3) the incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or (4) irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted. Thus, the proposed regulations list the statutory types and also provide guidance with regard to what constitutes significant hardship under the delay standard and other criteria. Significant hardship under the 30-day delay standard is met when a taxpayer does not receive a response by the date promised by the IRS, or when the IRS has established a normal processing time for taking an action and the taxpayer experiences a delay of more than 30 days beyond the normal processing time.



2. Distinction Between Significant Hardship and Issuance of TAO

The proposed regulations discuss the distinction between a finding of "significant hardship" and "the issuance of a TAO." The proposed regulations are designed to clarify that a finding by the NTA that a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS will not automatically result in the issuance of a TAO. After making a determination of significant hardship, the NTA must determine whether the facts and the law support relief.



3. Compliance with the TAO

The proposed regulations explain that a TAO is an order by the NTA to the IRS and that the IRS will comply with the terms of the TAO unless it is appealed and then modified or rescinded by the Commissioner, the Deputy Commissioner, or the NTA. If a TAO is modified or rescinded by the Commissioner or Deputy Commissioner, a written explanation of the reasons for the modification or rescission must be provided to the NTA. Furthermore, the proposed regulations clarify that a TAO is not intended to be a substitute for an established administrative or judicial review procedure, but rather is intended to supplement these procedures if a taxpayer is about to suffer or is suffering a significant hardship. Thus, a taxpayer's right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer's seeking assistance from the Taxpayer Advocate Service (TAS).



4. Form of Request

The proposed regulations provide that a request for a TAO shall be made on a Form 911, "Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order)" (or other specified form) or in a written statement that provides sufficient information for TAS to determine the nature of the harm or the need for assistance.



5. Scope of the TAO

The proposed regulations provide that the NTA can issue a TAO directing an action in the circumstances outlined in section 7811(b) . Section 7811(b) provides that the NTA may issue a TAO ordering the IRS within a specified time to (i) release levied property, or (ii) cease any action, take any action as permitted by law, or refrain from taking any action with respect to a taxpayer under: (A) chapter 64 (relating to collection); (B) chapter 70, subchapter B (relating to bankruptcy and receiverships); (C) chapter 78 (relating to discovery of liability and enforcement of title); or (D) any other provision of law specifically described by the NTA in the TAO. Consistent with the list of specific subchapter and chapters of the Code in section 7811(b) , the proposed regulations provide that the phrase "any provision of law" refers to other provisions of the internal revenue laws similar to the provisions enumerated in the statute.

The proposed regulations further provide that in circumstances where the statute does not authorize the issuance of a TAO to order a specific action, if the NTA determines that the taxpayer is suffering or about to suffer a significant hardship and that the issuance of a TAO is appropriate, the NTA may issue a TAO seeking to expedite, review, or reconsider an action at a higher level. Although the statute does not expressly state that a TAO may be issued to request that the IRS expedite, review, or reconsider at a higher level an action, the statute and the legislative history support this interpretation.

As initially enacted, section 7811(b) did not grant the Ombudsman (the predecessor to the NTA) the authority to order affirmative actions. At that time, section 7811(b) provided that a TAO could order either the release of levy or could order the IRS to cease or refrain from taking an action under the three enumerated chapters of the Code listed in the statute. Thus, under the initial version of section 7811(b)(2) , except for releasing levies, TAOs could not be issued to take affirmative actions. For example, a TAO could order the IRS to refrain from filing a Notice of Federal Tax Lien (NFTL), but it could not require the IRS to release an NFTL. Delegation Order (DO) 239 (01-31-92) remedied this problem by delegating to the Ombudsman the authority to order affirmative acts. Congress also recognized the deficiency in the law and amended section 7811(b) as part of TBOR 2 to allow TAOs to be issued with respect to affirmative acts by inserting the words "take any action as permitted by law" into the statute. The Committee Report to TBOR 2, H. Rep. No. 104-506, 104 th Cong., 2 nd Sess., at 1148 (1996), explains how the existing law was deficient in that, for example, it did not allow a TAO to be issued to expedite a refund or review the validity of a tax deficiency. The report explains that the reason for amendment to section 7811(b) was to allow a TAO to be issued "for a review of the appropriateness of the proposed action." Thus, consistent with the legislative history and the statutory amendments, the proposed regulations provide that where the statute does not authorize the issuance of a TAO to order a specific action, if the NTA determines that a taxpayer is suffering or about to suffer a significant hardship and that relief is appropriate, the NTA may issue a TAO seeking to expedite, review, or reconsider an action at a higher level.



6. Who is Subject to a TAO

The proposed regulations provide rules regarding who is subject to a TAO. Generally, a TAO can be issued to any operating division or function of the IRS. Due to the sensitivity and importance of criminal investigations, the proposed regulations provide that a TAO may not be issued if the action ordered in the TAO could reasonably be expected to impede a criminal investigation. The IRS Criminal Investigation division (CI) will determine whether the action ordered in the TAO could reasonably be expected to impede an investigation. Procedures for handling cases where the NTA questions CI's initial determination will be added to the IRM.

The rule for issuing a TAO to the Office of Chief Counsel has been updated to reflect the reorganization of the IRS as well as statutory changes. The existing regulations provide that: "[a] taxpayer assistance order may generally not be issued ... to enjoin an act of the Office of Chief Counsel (with the exception of Appeals)." Due to a reorganization of the Office of Chief Counsel, effective October 1, 1995, Appeals is no longer a component of the Office of Chief Counsel. Accordingly, the proposed regulations eliminate the parenthetical reference to Appeals in §301.7811-1(c)(3) . The NTA continues to have the authority to issue TAOs to Appeals. Additionally, at the time that the existing regulations were finalized, the Ombudsman could not issue a TAO to order an affirmative act, other than a release of levy. As discussed in this preamble, under the current version of the statute, the NTA has much broader authority regarding the ability to order an affirmative act. Thus, the term "enjoin" has also been eliminated, and the rule under the proposed regulations is that: "[g]enerally a TAO may not be issued to the Office of Chief Counsel."



Special Analyses

This notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The information required under these proposed regulations is already required by the current regulations and the Form 911, "Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance order)." In addition, the Form 911 takes minimal time and expense to prepare, and the filing of a Form 911 is optional. Therefore, preparing the Form 911 does not significantly increase the burden on taxpayers. Based on these facts, the Treasury Department and the IRS have determined that these proposed regulations will not have a significant economic impact on a substantial number of small entities. Furthermore, the substance of the regulations does not concern the Form 911, but the procedures the Taxpayer Advocate Service (TAS) or the Internal Revenue Service (IRS) must follow with respect to taxpayer assistance orders. Therefore, any burden created by these regulations is on the TAS or IRS, not taxpayers. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.



Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written or electronic comments that are submitted timely to the IRS. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .



Drafting Information

The principal author of these regulations is Janice R. Feldman, Office of the Special Counsel (National Taxpayer Advocate Program)(CC:NTA).



List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.



Withdrawal of Proposed Regulations

Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking that was published in the Federal Register on April 19, 1996 (61 FR 17265) is withdrawn.



Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:



PART 301 --PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.7811-1 is amended by revising paragraphs (a), (b), (c) and (d), removing paragraphs (f),(g), (h) and redesignating paragraph (h) as (f) and revising newly designated paragraph (f) to read as follows:



§301.7811-1 Taxpayer Assistance Orders

(a) Authority to issue --(1) In general . When an application for a Taxpayer Assistance Order (TAO) is filed by the taxpayer or the taxpayer's authorized representative in the form, manner and time specified in paragraph (b) of this section, the National Taxpayer Advocate (NTA) may issue a TAO if, in the determination of the NTA, the taxpayer is suffering or is about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Internal Revenue Service (IRS), including action or inaction on the part of the IRS.

(2) The National Taxpayer Advocate defined . The term National Taxpayer Advocate includes any designee of the NTA, such as a Local Taxpayer Advocate.

(3) Issuance without a written application . The NTA may issue a TAO in the absence of a written application by the taxpayer under section 7811(a) .

(4) Significant hardship --(i) Determination required . Before a TAO may be issued, the NTA is required to make a determination regarding significant hardship.

(ii) Term Defined . The term significant hardship means a serious privation caused or about to be caused to the taxpayer as the result of the particular manner in which the revenue laws are being administered by the IRS. Significant hardship includes situations in which a system or procedure fails to operate as intended or fails to resolve the taxpayer's problem or dispute with the IRS. A significant hardship also includes, but is not limited to:

(A) An immediate threat of adverse action;

(B) A delay of more than 30 days in resolving taxpayer account problems;

(C) The incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or

(D) Irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted.

(iii) A delay of more than 30 days in resolving taxpayer account problems is further defined . A delay of more than 30 days in resolving taxpayer account problems exists under the following conditions:

(A) When a taxpayer does not receive a response by the date promised by the IRS; or

(B) When the IRS has established a normal processing time for taking an action and the taxpayer experiences a delay of more than 30 days beyond the normal processing time.

(iv) Examples of significant hardship . The provisions of this section are illustrated by the following examples:

Example 1 . Immediate threat of adverse action . The IRS serves a levy on A's bank account. A needs the bank funds to pay for a medically necessary surgical procedure that is scheduled to take place in one week. If the levy is not released, A will lack the funds necessary to have the procedure. A is experiencing an immediate threat of adverse action.

Example 2 . Delay of more than 30 days . B files a Form 4506, "Request for a Copy of Tax Return." B does not receive the photocopy of the tax return after waiting more than 30 days beyond the normal time for processing. B is experiencing a delay of more than 30 days.

Example 3 . Significant costs . The IRS sends XYZ, Inc. several notices requesting payment of the outstanding employment taxes owed by XYZ, Inc. and four of its subsidiaries. The IRS contends that XYZ, Inc. and the four subsidiaries have small employment tax balances with respect to 12 employment tax quarters totaling $10X. XYZ, Inc. provides documentation to the IRS which it contends shows that if all payments were applied to each entity correctly, there would be no balance due. The IRS requests additional records and documentation. Because there are 60 tax periods (12 quarters for each of the five entities) involved, to comply with this request XYZ, Inc. will need to hire an accountant, who estimates he will charge at least $5X to organize all the records and provide a detailed analysis of the how the payments should have been applied. XYZ, Inc. is facing significant costs.

Example 4 . Irreparable injury . D has arranged with a bank to refinance his mortgage to lower his monthly payment. D is unable to make the current monthly payment. Unless the monthly payment amount is lowered, D will lose his residence to foreclosure. The IRS refuses to subordinate the federal tax lien, as permitted by IRC section 6325(d) , or discharge the property subject to the lien, as permitted by IRC section 6325(b) . As a result, the bank will not allow D to refinance. D is facing an irreparable injury if relief is not granted.

(5) Distinction Between Significant Hardship and the Issuance of a TAO . A finding that a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS will not automatically result in the issuance of a TAO. After making a determination of significant hardship, the NTA must determine whether the facts and the law support relief for the taxpayer. In cases where any IRS employee is not following applicable published administrative guidance (including the Internal Revenue Manual), the NTA shall construe the factors taken into account in determining whether to issue a TAO in the manner most favorable to the taxpayer.

(b) Generally . A TAO is an order by the NTA to the IRS. The IRS will comply with a TAO unless it is appealed and then modified or rescinded by the NTA, Commissioner or the Deputy Commissioner. If a TAO is modified or rescinded by the Commissioner or Deputy Commissioner, a written explanation of the reasons for the modification or rescission must be provided to the NTA. The NTA may not make a substantive determination of any tax liability. A TAO is also not intended to be a substitute for an established administrative or judicial review procedure, but rather is intended to supplement existing procedures if a taxpayer is about to suffer or is suffering a significant hardship. A request for a TAO shall be made on a Form 911, "Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order)" (or other specified form) or in a written statement that provides sufficient information for TAS to determine the nature of the harm or the need for assistance. A taxpayer's right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer's seeking assistance from TAS.

(c) Contents of Taxpayer Assistance Orders . After establishing that the taxpayer is facing significant hardship and determining that the facts and law support relief to the taxpayer, the NTA may issue a TAO ordering the IRS within a specified time to --

(1) Release a Levy . Release levied property (to the extent that the IRS may by law release such property); or

(2) Take Certain Other Actions . Cease any action, take any action as permitted by law, or refrain from taking any action with respect to a taxpayer pursuant to --

(i) Chapter 64 (relating to collection);

(ii) Chapter 70, subchapter B (relating to bankruptcy and receiverships);

(iii) Chapter 78 (relating to discovery of liability and enforcement of title); or

(iv) Any other provision of the internal revenue laws specifically described by the NTA in the TAO.

(3) Expedite, Review or Reconsider an Action at a Higher Level . Although the NTA may not make the substantive determination, a TAO may be issued to require the IRS to expedite, reconsider, or review at a higher level an action taken with respect to a determination or collection of a tax liability.

(4) Examples . The following examples assume the existence of significant hardship:

Example 1 . J contacts a local taxpayer advocate because a wage levy is causing financial difficulties. The NTA determines that the levy should be released as it is causing economic hardship (within the meaning of section 6343(a) and Treas. Reg. §301.6343-1(b)(4)) . The NTA may issue a TAO ordering the IRS to release the levy in whole or in part by a specified date.

Example 2 . The IRS rejects K's offer in compromise. K files a Form 911, "Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order)." The NTA discovers facts that support acceptance of the offer in compromise. The NTA may issue a TAO ordering the IRS to reconsider its rejection of the offer or to review the rejection of the offer at a higher level. The TAO may include NTA analysis of and recommendation for resolving the case.

Example 3 . L files a protest requesting Appeals consideration of IRS's proposed denial of L's request for innocent spouse relief. Appeals advises L that it is going to issue a Final Determination denying the request for innocent spouse relief. L files a Form 911, "Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order)." The NTA reviews the administrative record and concludes that the facts support granting innocent spouse relief. The NTA may issue a TAO ordering Appeals to refrain from issuing a Final Determination and reconsider or review at a higher level its decision to deny innocent spouse relief. The TAO may include TAS analysis of and recommendation for resolving the case.

(d) Issuance . A TAO may be issued to any office, operating division, or function of the IRS. A TAO shall apply to persons performing services under a qualified tax collection contract (as defined in section 6306(b) ) to the same extent and in the same manner as the order applies to IRS employees. A TAO will not be issued to IRS Criminal Investigation division (CI), or any successor IRS division responsible for the criminal investigation function, if the action ordered in the TAO could reasonably be expected to impede a criminal investigation. CI will determine whether the action ordered in the TAO could reasonably be expected to impede an investigation. Generally, a TAO may not be issued to the Office of Chief Counsel.

* * * * *

(f) Effective applicability date . These regulations are applicable for TAOs issued on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register, except that paragraph (e) is applicable beginning March 20, 1992.

Linda E. Stiff

Deputy Commissioner for Services and Enforcement